Post loss/profit announcement drift
Journal
Journal of Accounting and Economics
Subject
Accounting
Publishing details
Authors / Editors
Balakrishnan K;Bartov E;Faurel L
Publication Year
2010
Abstract
We document a market failure to fully respond to loss/profit quarterly announcements. The annualized post portfolio formation return spread between two portfolios formed on extreme losses and extreme profits is approximately 21 percent. This loss/profit anomaly is incremental to previously documented accounting-related anomalies, and is robust to alternative risk adjustments, distress risk, firm size, short sales constraints, transaction costs, and sample periods. In an effort to explain this finding, we show that this mispricing is related to differences between conditional and unconditional probabilities of losses/profits, as if stock prices do not fully reflect conditional probabilities in a timely fashion.
Keywords
Loss/profit mispricing; Loss/profit predictability; Accounting losses/profits; Post-earnings-announcement drift; Earnings-based anomalies
Available on ECCH
No